What will regulators do to protect retirement plans from companies like AOL?


AOL chief executive Tim Armstrong has blamed the new health care law for why his company has made a major change to its 401(k) benefits. Photo by Pete Marovich/Bloomberg

AOL attracted plenty of bad publicity when it tried to change the timing of its 401(k) matches to an annual lump sum. But who else is doing it, and how widespread is the practice? It’s nearly impossible to say beyond individual anecdotes. Companies don’t have to report it to the Department of Labor, and many are loathe to disclose their practices, especially given the recent news. (I e-mailed one company after getting a tip from an employee, and the spokesperson cited AOL as the reason they didn't want to talk.)

The top securities regulator in Massachusetts is trying to change all this. In the first sign of political pressure since the AOL incident, Massachusetts Secretary William F. Galvin sent a letter this week to the country’s 25 largest 401(k) plan administrators -- companies like Fidelity and Charles Schwab—asking them how many firms have shifted their matches to an annual lump sum. Galvin is also asking them to reveal what information is being given to employees about the risks of such a change.

"Anecdotal information, as entertaining as it is, is not as good as having some sort of data that's reliable," said Galvin.

Galvin said that one of the problems is that most employees don't spend a lot of time looking at their 401(k)s. And many of them probably miss tweaks that could hurt their ability to save enough for retirement.

"Whatever we find we’re certainly going to share with people, and hopefully we’ll provide and provoke a discussion among those of us who regulate custodians as to what minimal information is provided," said Galvin. 

The information on the quality of 401(k)s is patchy. A number of consulting firms conduct surveys asking companies questions, such as when they time their matches, but the information is all self-reported. Firms do have to report some details to the Labor Department, but there isn't much standardization. And most companies post their HR information on a company intranet (AOL being an exception).

For a major retirement savings vehicle that an increasing number of Americans will depend on, there's surprisingly little information tracking the quality of the benefits.

"This is the type of thing that can lead to increased disclosure," said Mike Alfred, head of Brightscope, which independently evaluates company retirement benefits. "If it starts to pick up steam, you might even see the Department of Labor want to make it something that’s disclosed regularly."

Jia Lynn Yang is a staff writer at The Washington Post who covers policy and business. Before joining the Post, she worked at Fortune magazine.
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